An investor has projected three possible scenarios for a project as follows:

PessimisticNOI will be $215,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for $1.86 million after five years.

Most likelyNOI will be level at $215,000 per year for the next five years (level NOI) and the property will sell for $2.15 million.

OptimisticNOI will be $215,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for $2.50 million.

The asking price for the property is $2.15 million. The investor thinks there is about a 30 percent probability for the pessimistic scenario, a 40 percent probability for the most likely scenario, and a 30 percent probability for the optimistic scenario.

Required:

a. Compute the IRR for each scenario.

	IRR
Pessimistic		%
Most likely		%
Optimistic		%

b. Compute the expected IRR.

Expected IRR

%

c. Compute the variance and standard deviation of the IRRs.

Variance		%
Standard deviation		%